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A Reverse Split Can't Fix This Broken Stock

You give us those nice bright colors
You give us the greens of summers
Makes you think all the world's a sunny day, oh yeah!"
-- "Kodachrome" by Paul Simon

Eastman Kodak (NYSE: EK  ) was once the most powerful brand in film and cameras. The best things in life were Kodak Moments, and Paul Simon waxed poetic about the brand's flagship film. Life was good.

Those sunny days are over. Unable to compete in the new world of film-less digital cameras, Kodak is desperately clinging to life. The company has an ugly habit of burning cash rather than making it, and the stock's market value has followed suit:

And the sad story doesn't end there. Last night, Kodak got the dreaded delisting notice from the NYSE. The stock has traded below the $1.00 minimum share price for more than 30 days, and the Big Board doesn't want to trade penny stocks. If the company can't get its share-price act together in the next six months, it could get booted off the board. Appeals might extend that deadline, but not forever.

One quick fix in situations like this is the reverse split move. It sounds like a painful gymnastic maneuver, but it's actually a totally academic rebalancing of share counts and values. Do a 1-for-10 reverse split and you'd immediately get 10 times the share price on one-tenth as many shares. Market caps don't change, nor does the value of your holdings.

But we hate reverse splits!
Yet, perennial penny-land denizens don't like to go there. Take Sirius XM Radio (Nasdaq: SIRI  ) , for example. Whenever the satellite radio giant's share price dips below $1, CEO Mel Karmazin shouts that he'd rather cure the listing problem "organically" rather than wave the white flag of reverse-split defeat. It's a matter of pride.

Some investors assume that management has given up when this move rears its unwelcome head. As an example of the market effects in play, you could point to Citigroup (NYSE: C  ) doing a tenfold reverse split in May and then underperforming the market. Then again, that's more a result of Citigroup's continued terrible execution -- a few large banks have done even worse without resorting to extreme share-count measures.

Well, Kodak has other reasons not to go down this unpopular road. This is from the delisting notice announcement:

Notwithstanding the opportunity for a six-month grace period to return to compliance with NYSE continued listing requirements, given the liquidity challenges confronting the Company and the recent market experience with our listed securities, there can be no assurance that the Company will return to compliance with the NYSE listing standards. Moreover, no assurance can be given that future actions by the Company or the marketplace will not give rise to alternative bases for potential delisting from the NYSE.

The Kodak moment has passed
This company really did give up already. Kodak is frantically looking for a buyer of its extensive patents in digital imaging. CEO Antonio Perez says that about 10% of the patent portfolio is on the table, and he is "very pleased" with the level of interest in this asset sale. But he wouldn't commit to a timeline or a dollar value.

And if he finds a buyer, he'll basically sell the digital-era assets he'd need in order to run a viable business. Call these patents "non-core" all you want, Antonio -- I think you're wrong. It's like Frank McCourt's family first breaking down the furniture and then the very apartment walls as firewood in Angela's Ashes. How much more desperate can you get?

Investors clearly saw this delisting notice coming; shares dropped just a penny on the news. Or, you know, about 1.5%.

This once-proud stock is inevitably sliding toward the edge of oblivion. At long last, Mama is taking the Kodachrome away. I just placed a thumbs-down CAPScall on Kodak, because I don't see how the company can recover.

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Editor's Note: A previous version of this article listed Nasdaq’s minimum listing level at $2 a share rather than $1 a share. We regret the error.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

Read/Post Comments (18) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2012, at 12:34 PM, Austin77478 wrote:

    "Sirius XM Radio (Nasdaq: SIRI ) could save its shareholders a world of worry by orchestrating a split like this, but it apparently prefers to stick with a price below the Nasdaq's $2 minimum listing level and a staggering 3.7 billion shares in rotation. Whenever the satellite radio giant's share price dips below $1, CEO Mel Karmazin shouts that he'd rather cure the listing problem "organically" rather than waving the white flag of reverse-split defeat. It's a matter of pride." Anders! Get your facts straight before publishing!

  • Report this Comment On January 04, 2012, at 12:37 PM, trysson wrote:

    Kodak to PINK SHEETS?

  • Report this Comment On January 04, 2012, at 12:44 PM, TMFSymington wrote:

    Agree with your thoughts on EK, but on a side note, isn't the minimum bid price requirement $1? (Nasdaq Listing Rule 5500(a)(2)). See:

    Please correct me if I'm wrong...

  • Report this Comment On January 04, 2012, at 12:58 PM, burgman2170 wrote:

    Stock split never work. I had Nortel, I had JDSU, I had XKEM and others and the stock price went down to cents. 10-1 stock split for JDSU and it can't get over 21 bucks a share now under 11 bucks.

    If Sirius does a RS I'm out for good. This stock is moving up a little might get to two bucks by summer it all depends on auto sales.

    We shall see!

  • Report this Comment On January 04, 2012, at 2:34 PM, choffmanzinnel wrote:

    Yes - the req threshold is $1/share not $2/share like the writer claims. I have asked The Fool to take down this article and block the writer from any more articles. What was posted is false and if the writer knew anything about Nasdaq threshold req he would have realized that his facts are false.

    The article will be reported to the SEC if it is not taken down by the close of trading today.


    SIRI Shareholder

  • Report this Comment On January 04, 2012, at 2:57 PM, TMFZahrim wrote:

    Charles and gang, of course it's $1. What you see here is a simple fat-finger typo. Apologies, and it will be corrected.


  • Report this Comment On January 04, 2012, at 3:09 PM, choffmanzinnel wrote:

    No - it was not a fat-finger screw up as the entire line prior assumes the stock is trading below the threshold. If it was a mistake and you meant $1 - it would not be stated as meant to post this falsely.

    Fix it or it will be reported to the SEC!

  • Report this Comment On January 04, 2012, at 3:11 PM, choffmanzinnel wrote:

    "Sirius XM Radio (Nasdaq: SIRI ) could save its shareholders a world of worry by orchestrating a split like this, but it apparently prefers to stick with a price below the Nasdaq's $2 minimum listing level "

    How is ANY of what you wrote a mistake? Even if you tried to make a mistake - the stock would not even be close to below the $1/share threshold req which would negate any of the above statement. You did it on purpose....might send it to the SEC just for lying to your readers!

  • Report this Comment On January 04, 2012, at 3:15 PM, choffmanzinnel wrote:

    Maybe you need to get an editor so things like this don't happen in the future. Your article is sloppy at best.

  • Report this Comment On January 04, 2012, at 3:21 PM, TMFZahrim wrote:

    @choffmanzinnel, the stock traded below $1 not that long ago, and Karmazin last addressed the reverse-split possibility in the second-quarter earnings call. And in the media industry, it doesn't take much to slash share prices by half which would raise the Nasdaq specter once again. I'm not saying it will happen, but the possibility would be far less concerning if Sirius just trimmed down the share count a bit. Nobody likes a delisting notice, even if the stock manages to climb back out of the dumpster eventually.


  • Report this Comment On January 04, 2012, at 3:31 PM, choffmanzinnel wrote:

    Please the stock hasnt traded under $1 since sometime in 2010....dont even go there.......

    FYI...Karmazin said there will be NO R/S

    A share buyback is much more likely than a r/s or paying off the company debt. It appears you need to do more research before you write your articles or post comments.

  • Report this Comment On January 04, 2012, at 3:34 PM, choffmanzinnel wrote:

    It has been over a year and six months since SIRI has traded even a little under $1/share price.

    (August 27th, 2010 - .99/share)

  • Report this Comment On January 04, 2012, at 3:35 PM, choffmanzinnel wrote:

    Did you not listen to the third quarter cc....pretty sure the CEO of SIRI said there is no need for a r/s....if you are going to write an article...maybe you need to listen to the most recent cc.

  • Report this Comment On January 04, 2012, at 3:36 PM, choffmanzinnel wrote:

    Also, if you expect to write articles that investors will can expect the article, your writing ability and your knowledge of the subject matter will be attacked.

  • Report this Comment On January 04, 2012, at 5:56 PM, burgman2170 wrote:

    Lets not rock the boat here pals. The stock price has gone up very nicely the last few months. Hey 1.80 is not bad since the penny days. Don't spread bad news about R/S splits if the CEO says no. Today SIRI picked up 1.7 million users in 2010. This is good news and the stock is up after hours.

    Many of these types of articles are written to drive SIRI down yet I have made money on this stock for years. The company is stronger now then ever before. Don't print negative news if there isn't any out there about this company.

  • Report this Comment On January 04, 2012, at 9:22 PM, FM5 wrote:

    George Eastman

    He was a high school dropout, judged "not especially gifted" when measured against the academic standards of the day. He was poor, but even as a young man, he took it upon himself to support his widowed mother and two sisters, one of whom was severely handicapped.

    He began his business career as a 14-year old office boy in an insurance company and followed that with work as a clerk in a local bank.

    He was George Eastman, and his ability to overcome financial adversity, his gift for organization and management, and his lively and inventive mind made him a successful entrepreneur by his mid-twenties, and enabled him to direct his Eastman Kodak Company to the forefront of American industry.

    George Eastman.

    But building a multinational corporation and emerging as one of the nation's most important industrialists required dedication and sacrifice. It did not come easily.

    To learn more about Eastman and how he helped bring photography and images into our daily lives, read on and also watch this brief history of his life and Kodak's early years.


    The youngest of three children, George Eastman was born to Maria Kilbourn and George Washington Eastman on July 12, 1854 in the village of Waterville, some 20 miles southwest of Utica, in upstate New York. The house on the old Eastman homestead, where his father was born and where George spent his early years, has since been moved to the Genesee Country Museum in Mumford, N.Y., outside of Rochester.

    When George was five years old, his father moved the family to Rochester. There the elder Eastman devoted his energy to establishing Eastman Commercial College. Then tragedy struck. George's father died, the college failed and the family became financially distressed.

    George continued school until he was 14. Then, forced by family circumstances, he had to find employment.

    His first job, as a messenger boy with an insurance firm, paid $3 a week. A year later, he became office boy for another insurance firm. Through his own initiative, he soon took charge of policy filing and even wrote policies. His pay increased to $5 per week.

    But, even with that increase, his income was not enough to meet family expenses. He studied accounting at home evenings to get a better paying job.

    In 1874, after five years in the insurance business, he was hired as a junior clerk at the Rochester Savings Bank. His salary tripled -- to more than $15 a week.

    Trials of an Amateur

    When Eastman was 24, he made plans for a vacation to Santo Domingo. When a co-worker suggested he make a record of the trip, Eastman bought a photographic outfit with all the paraphernalia of the wet plate days.

    The camera was as big as a microwave oven and needed a heavy tripod. And he carried a tent so that he could spread photographic emulsion on glass plates before exposing them, and develop the exposed plates before they dried out. There were chemicals, glass tanks, a heavy plate holder, and a jug of water. The complete outfit "was a pack-horse load," as he described it. Learning how to use it to take pictures cost $5.

    Eastman did not make the Santo Domingo trip. But he did become completely absorbed in photography and sought to simplify the complicated process.

    A self-portrait on

    experimental film.

    He read in British magazines that photographers were making their own gelatin emulsions. Plates coated with this emulsion remained sensitive after they were dry and could be exposed at leisure. Using a formula taken from one of these British journals, Eastman began making gelatin emulsions.

    He worked at the bank during the day and experimented at home in his mother's kitchen at night. His mother said that some nights Eastman was so tired he couldn't undress, but slept on a blanket on the floor beside the kitchen stove.

    After three years of photographic experiments, Eastman had a formula that worked. By 1880, he had not only invented a dry plate formula, but had patented a machine for preparing large numbers of the plates. He quickly recognized the possibilities of making dry plates for sale to other photographers.

    Birth of a Company

    In April 1880, Eastman leased the third floor of a building on State Street in Rochester, and began to manufacture dry plates for sale. One of his first purchases was a second-hand engine priced at $125.

    "I really needed only a one horse-power," he later recalled. "This was a two horse-power, but I thought perhaps business would grow up to it. It was worth a chance, so I took it."

    As his young company grew, it faced total collapse at least once when dry plates in the hands of dealers went bad. Eastman recalled them and replaced them with a good product. "Making good on those plates took our last dollar," he said. "But what we had left was more important -- reputation."

    Eastman's first office was on

    the third floor of this building

    on State Street, in Rochester.

    "The idea gradually dawned on me," he later said, "that what we were doing was not merely making dry plates, but that we were starting out to make photography an everyday affair." Or as he described it more succinctly "to make the camera as convenient as the pencil."

    Eastman's experiments were directed to the use of a lighter and more flexible support than glass. His first approach was to coat the photographic emulsion on paper and then load the paper in a roll holder. The holder was used in view cameras in place of the holders for glass plates.

    The first film advertisements in 1885 stated that "shortly there will be introduced a new sensitive film which it is believed will prove an economical and convenient substitute for glass dry plates both for outdoor and studio work."

    This system of photography using roll holders was immediately successful. However, paper was not entirely satisfactory as a carrier for the emulsion because the grain of the paper was likely to be reproduced in the photo.

    Eastman's solution was to coat the paper with a layer of plain, soluble gelatin, and then with a layer of insoluble light-sensitive gelatin. After exposure and development, the gelatin bearing the image was stripped from the paper, transferred to a sheet of clear gelatin, and varnished with collodion -- a cellulose solution that forms a tough, flexible film.

    As he perfected transparent roll film and the roll holder, Eastman changed the whole direction of his work and established the base on which his success in amateur photography would be built.

    He later said: "When we started out with our scheme of film photography, we expected that everybody who used glass plates would take up films. But we found that the number which did so was relatively small. In order to make a large business we would have to reach the general public."


    Eastman's faith in the importance of advertising, both to the company and to the public, was unbounded. The very first Kodak products were advertised in leading papers and periodicals of the day -- with ads written by Eastman himself.

    Eastman coined the slogan, "you press the button, we do the rest," when he introduced the Kodak camera in 1888 and within a year, it became a well-known phrase. Later, with advertising managers and agencies carrying out his ideas, magazines, newspapers, displays and billboards bore the Kodak banner.

    Space was taken at world expositions, and the "Kodak Girl," with the style of her clothes and the camera she carried changing every year, smiled engagingly at photographers everywhere. In 1897, the word "Kodak" sparkled from an electric sign on London's Trafalgar Square -- one of the first such signs to be used in advertising.

    An early ad featuring a slogan coined by Eastman.

    Today, company advertising appears around the world and the trademark "Kodak," coined by Eastman himself, is familiar to nearly everyone.

    The word "Kodak" was first registered as a trademark in 1888. There has been some fanciful speculation, from time to time, on how the name was originated. But the plain truth is that Eastman invented it out of thin air.

    He explained: "I devised the name myself. The letter 'K' had been a favorite with me -- it seems a strong, incisive sort of letter. It became a question of trying out a great number of combinations of letters that made words starting and ending with 'K.' The word 'Kodak' is the result." Kodak's distinctive yellow trade dress, which Eastman selected, is widely known throughout the world and is one of the company's more valued assets.

    Thanks to Eastman's inventive genius, anyone could now take pictures with a handheld camera simply by pressing a button. He made photographers of us all.

    Benefiting the Employee

    Beyond his inventive genius, Eastman blended human and democratic qualities, with remarkable foresight, into the building of his business. He believed employees should have more than just good wages -- a way of thinking that was far ahead of management people of his era.

    Early in his business, Eastman began planning for "dividends on wages" for employees. His first act, in 1899, was the distribution of a substantial sum of his own money -- an outright gift -- to each person who worked for him.

    Camera manufacturing in the 1890's.

    Later he set up a "Wage Dividend," in which each employee benefited above his or her wages in proportion to the yearly dividend on the company stock. The Wage Dividend was an innovation, and represented a large part of the distribution of the company's net earnings.

    Eastman felt that the prosperity of an organization was not necessarily due to inventions and patents, but more to workers' goodwill and loyalty, which in turn were enhanced by forms of profit sharing.

    In 1919, Eastman gave one-third of his own holdings of company stock -- then worth $10 million -- to his employees. Still later came the fulfillment of what he felt was a responsibility to employees with the establishment of retirement annuity, life insurance, and disability benefit plans. With these benefits, and the Wage Dividend, employees could confidently look forward to a more secure future.

    Carl W. Ackerman, a biographer, writing in 1932, said: "Mr. Eastman was a giant in his day. The social philosophy, which he practiced in building his company, was not only far in advance of the thinking during his lifetime, but it will be years before it is generally recognized and accepted."

    Giving Away His Fortune

    Eastman is almost as well known for his philanthropy as he is for his pioneering work in photography. In this field, as in others, he put the direction of an enthusiastic amateur to work.

    He began giving to nonprofit institutions when his salary was $60 a week -- with a donation of $50 to the young and struggling Mechanics Institute of Rochester, now the Rochester Institute of Technology.

    He was an admirer of the Massachusetts Institute of Technology because he had hired some of its graduates, who had become his best assistants. This admiration, after thorough study, was translated into a handsome gift to M.I.T., eventually reaching $20 million. It was given anonymously from a "Mr. Smith," and for several years the identity of mysterious "Mr. Smith" was speculated about, even finding expression in a popular M.I.T. song.

    Dental clinics were also of great interest to Eastman. He devised complete plans and financial backing for a $2.5 million dental clinic for Rochester. He then started a large-scale, remedial dental program for children. Dental clinics were also given to London, Paris, Rome, Brussels and Stockholm.

    When asked why he favored dental clinics, he replied, "I get more results for my money than in any other philanthropic scheme. It is a medical fact that children can have a better chance in life with better looks, better health and more vigor if the teeth, nose, throat and mouth are taken proper care of at the crucial time of childhood."

    Eastman loved music and wanted others to enjoy the beauty and pleasure of music. He established and supported the Eastman School of Music, a theatre, and a symphony orchestra. "It is fairly easy to employ skillful musicians. It is impossible to buy appreciation of music. Yet without a large body of people who get joy out of it, any attempt to develop musical resources of any city is doomed to failure," he said. So his plan had a practical formula for exposing the public to music -- with the result that the people of Rochester have for decades supported their own philharmonic orchestra.

    Interest in hospitals and dental clinics had grown with Eastman's work and study of the field. He promoted and brought to fruition a program to develop a medical school and hospital at the University of Rochester, which became as nationally prominent as the university's music school. Rochester is filled with Eastman landmarks that contribute to the enrichment of community life.

    His sincere concern for the education of African Americans brought gifts to the Hampton and the Tuskegee Institutes. One day in 1924, Eastman signed away $30 million to the University of Rochester, M.I.T., Hampton and Tuskegee. As he laid down the pen he said, "Now I feel better."

    In explaining these large gifts, he said, "The progress of the world depends almost entirely upon education. I selected a limited number of recipients because I wanted to cover certain kinds of education, and felt I could get results with those named quicker and more directly than if the money were spread."

    Eastman often made the beneficiary match his gift in some way, so the institution would have the confidence of standing on its own. For him, great wealth brought the greater opportunity to serve.

    Leisure Hours

    Eastman was reticent and shunned publicity. It seems paradoxical that the man whose name is synonymous with photography should have fewer photographs taken of him than many other outstanding leaders of his time. He could walk down the main street of Rochester without being recognized.

    Eastman lived his philosophy, "What we do during our working hours determines what we have; what we do in our leisure hours determines what we are." A tough competitor, hard-bitten and practical in business, he was gentle and congenial at home or in the field of outdoor enjoyment.

    George Eastman relaxing in his library.

    In his yearly visits to Europe, he toured the art galleries methodically -- even cycling from place to place. By the time he could afford masterpieces, he had learned enough to say, "I never buy a painting until I have lived with it in my home." The result: his home became the showplace of one of the finest private collections of paintings.

    The Vision of a Pioneer

    He was a modest, unassuming man... an inventor, a marketer, a global visionary, a philanthropist, and a champion of inclusion.

    Eastman died by his own hand on March 14, 1932 at the age of 77. Plagued by progressive disability resulting from a hardening of the cells in the lower spinal cord, Eastman became increasingly frustrated at his inability to maintain an active life, and set about putting his estate in order.

    "Eastman was a stupendous factor in the education of the modern world," said an editorial in the New York Times following his death. "Of what he got in return for his great gifts to the human race he gave generously for their good; fostering music, endowing learning, supporting science in its researches and teaching, seeking to promote health and lessen human ills, helping the lowliest in their struggle toward the light, making his own city a center of the arts and glorifying his own country in the eyes of the world."

  • Report this Comment On January 05, 2012, at 1:06 PM, TMFSymington wrote:

    Seriously, folks, remember this is an article about EK, not an attack on SIRI. Btw, timing of this couldn't have been better with yesterdays EK news causing it to plummet. Kudos to you Anders. :-)

  • Report this Comment On January 19, 2012, at 8:00 AM, TMFZahrim wrote:

    Today, Kodak filed for Chapter 11 bankruptcy protection. Shares will be delisted from the NYSE though it's unclear whether the stock will be liquidated or not. That's unlike Blockbuster, which told investors up front that shares would be worthless.

    My bearish thesis has now played out. I wish Kodak the best of luck in restructuring, staying alive, and getting back on its feet. I'll be watching from the sidelines.


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